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Microsot DynamicsTM AX

Integrated Financial Managementor the Energy Industry

WHITE PAPER

Energy Financial Management or Microsot Dynamics AX

March 1, 2007

For the latest inormation, visit

www.microsot.com/dynamics/ax/product/industrysolutions.

INTEGRATION


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INTEGRATED FINANCIAL MANAGEMENT FOR THE ENERGY INDUSTRY

Table o Contents

Introduction.3Purpose o This Document ...........................................................................................................................................................3

Challenges.in.the.Energy.Industry. 3

Energy.Financial.Management.for.Microsoft.Dynamics.AX:.Overview. 3World-Class Accounting System ................................................................................................................................................4

Comprehensive Business Management Solution Platorm ..............................................................................................4

Crucial Integration Platorm ........................................................................................................................................................4

Solution.Advantages.5Flexible .................................................................................................................................................................................................6

Tailored to Industry-Specic Requirements ...........................................................................................................................6

Scalable................................................................................................................................................................................................7International ......................................................................................................................................................................................7

Features.and.Functionality. 8Cost Center Controls ......................................................................................................................................................................9

Authorization or Expenditure (AFE).........................................................................................................................................9

Division o Interest (DOI)............................................................................................................................................................10

Joint-Venture Billing (JVB) .........................................................................................................................................................11

Technical.Overview.11

Conclusion 12


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Introduction

Oil and gas and mining businesses ace myriad challenges every day, rom the ordinary demands o

seeking protability, to gaining competitive advantage by developing and innovating, to satisying

government reporting requirements. Those that operate internationally sometimes have to meet dierent

regulations in dierent countries or locales. Microsot Dynamics AX, a business management solution,delivers ast, reliable, comprehensive accounting, nancial reporting, and analysis capabilities to businesses

worldwide, and it provides a platorm or integrated nancial management solutions.

Purpose o This Document

This white paper describes some o the business challenges aced by companies in the energy industry, and

it provides details about a signicant integrated nancial management solution designed specically or

oil and gas and mining companiesEnergy Financial Management or Microsot Dynamics AX. This white

paper details how Energy Financial Management or Microsot Dynamics AX weaves together resource

planning, accounting, and system integration into a worldwide nancial management system specially

customized to meet the specic needs o energy companies worldwide.

Challenges in the Energy Industry

Energy drives daily lie all around the globe, and every year the demand or energy increases. Energy

companiesoil and gas and mining companies in particularare among some o the worlds largest

enterprises, and they are in high demand. They must respond to the changing needs o the marketplace,

work to stay competitive globally, and comply with changing industry and governmental standards.

Increasing corporate governance and regulatory requirements necessitate that these businesses have

systems in place to support compliance while easing the burden o reporting. Oil and gas and mining

companies ace complex challenges rom the eects o global economic fuctuations, critical swings in

supply and demand, political changes, natural disasters, and requent mergers and acquisitions. Having

a rm oundation o strong nancial management that supports regulatory compliance as well as global

business requirements is crucial to success in this industry.

Energy companies need to be able to respond quickly to changes, and they need strong resource planning,

operational eciency, and international nancial management to enable them to stay viable and maintain

competitive advantage. They need an integrated nancial management solution that addresses the

complexity o their dynamic industry.

Energy Financial Management for Microsoft Dynamics AX: Overview

Powered by Microsot Dynamics AX, the Energy Financial Management solution is specially designed or oil

and gas and mining companies and provides integrated nancial management, support or joint-ventureand international business, and a standard solution or worldwide nancial management and reporting.

Energy Financial Management or Microsot Dynamics AX delivers unctionality needed or success in the

energy industry by providing:

A world-class accounting system.

A comprehensive business management solution platorm.


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A crucial integration platorm.

World-Class Accounting System

Energy Financial Management or Microsot Dynamics AX combines accounting requirements specic to

the energy industry with robust, state-o-the-art technology, resulting in a fexible solution that meets or

exceeds international nancial and accounting standards. Companies can manage nancial inormation

using multiple dimensions, and they can choose ull cost or successul eorts accounting by project.

And because the Energy Financial Management solution is built on Microsot Dynamics AX, the solution is

amiliar and easy to use.

Comprehensive Business Management Solution Platorm

Energy Financial Management or Microsot Dynamics AX provides much more than nancial management

and reportingit also provides the oundation or a business management system. With a comprehensive

business management system, companies get a single accurate view o their nancial inormation along

with built-in controls to help monitor expenditures, enorce billing rules, and meet reporting requirements

in the international market.

In addition, by incorporating modules such as customer relationship management (CRM), human resource

management (HRM), and trade modules or materials management in the eld, companies can build a

comprehensive business management system with Energy Financial Management or Microsot Dynamics

AX at the oundation.

Crucial Integration Platorm

Energy companies commonly rely on many dierent mission-critical applications, each including some

nancial elements, or day-to-day operations. Tracking and managing disparate inormation sources can be

dicult and prone to error. To help ensure accurate and complete nancial reporting, companies need to

be able to integrate data rom multiple applications into a primary nancial system.

The solutions modular architecture simplies the process o integrating mission-critical applications with

a companys existing nancial system. By integrating nancial elements o operations into a single view,

Energy Financial Management or Microsot Dynamics AX streamlines disparate systems such as exploration

and drilling management tools. Linking processes between disciplines and capitalizing on business

data helps companies enhance operational perormance, improve reporting accuracy, increase overall

eectiveness, and gain important insight rom their nancial data, insight that supports well-inormed and

condent business decision-making.

Deep integration with Microsot SQL ServerTM and Oracle corporate databases enables companies to use a

single source or all their nancial inormation. One inormation source gives companies the advantage o

accurate, up-to-date nancial inormation and increased security and control.

Energy Financial Management or Microsot Dynamics AX is designed as a tightly integrated sub-ledger to

Microsot Dynamics AX, and it integrates with other energy industry modules such as Land, Well Lie Cycle,

and Production Revenue Accounting. It also integrates with modules developed in-house, simpliying

development and maintenance.

Figure 1 outlines the integration model, with Energy Financial Management or Microsot Dynamics AX at

the center. Notice how the solution incorporates data rom many diverse sources, streamlining nancial

processes and integrating disparate sources o data into one primary nancial system. By linking processes


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between disciplines and integrating business data across the inrastructure, companies gain operational

advantage and benet rom insight they can develop rom the integrated data.

Figure 1: Energy Financial Management or Microsot Dynamics AX provides a robust platorm thatintegrates multiple nancial systems into a single, comprehensive system.

Solution Advantages

The dynamic nature and rigorous operating demands o the oil and gas and mining industries emphasize

the need or custom nancial management solutions. Traditional nancial management solutions, built

or general business requirements, simply cant meet the needs o oil and gas and mining companies.

Customizing a traditional, generic solution (when it is even possible) can be extremely expensive, time-

consuming, and complex. With Energy Financial Management or Microsot Dynamics AX, the special

customization that oil and gas and mining companies require is already done.

Companies do not want to retool their business processes to adapt to a solution. They want a nancial

management solution that can be congured to support their existing business processes and be able toadapt to changes in the company.

To be eective, a nancial management solution must integrate with other industry-specic applications

and must be scalable to help companies quickly respond to the changes brought about by growth,

mergers, and acquisitions. And the solution must support international business requirements. Energy

Financial Management or Microsot Dynamics AX provides advantages on all o these dimensions.


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Delivering an integrated, robust, comprehensive nancial management solution or oil and gas and mining

companies, Energy Financial Management or Microsot Dynamics AX is:

Flexible and congurable.

Tailored to industry-specic requirements.

Scalable.

International.

Flexible

Companies can avoid costly customization by taking advantage o the solutions fexibility. Traditional

accounting systems typically have little ability to adapt to even minor modications or user preerences,

while most enterprise resource planning (ERP) solutions require extensive customization to be eective.

The modular nature o Energy Financial Management or Microsot Dynamics AX means that it can

be deployed out o the box, or it can be adapted to support industry best practices, specic business

processes, or company preerences. Either way, because the solution adapts to the business need rather

than the business having to adapt to the solution, companies benet rom increased eciency and lowercost.

Tailored to Industry-Specifc Requirements

Traditional accounting systems are not designed to meet the industry-specic requirements o energy

companies. With its open and modular design, Energy Financial Management or Microsot Dynamics

AX is tailored to the unique nancial requirements o oil and gas and mining companies to manage joint

ventures and expenditures.

Figure 2 illustrates the dierences between Energy Financial Management or Microsot Dynamics AX

and traditional accounting systems and ERP solutions. Notice that with a traditional accounting system,

customer-specic adjustments are not available. The business components are preset and generic.Companies must adjust to the system, not the other way around. Any customization is expensive and time-

consuming. Although traditional ERP systems are customizable, they are extremely costly.

Because Energy Financial Management or Microsot Dynamics AX is designed specically or the oil and

gas and mining industries, it delivers a unctional advantage with industry-specic eatures. Customization

is not needed, and any necessary customer-specic adjustments are easily made by using the standard

Microsot Dynamics AX development environment.

Similarly, conventional ERP systems are not designed to meet the industry-specic needs o oil and gas

and mining companies and require extensive and expensive customization to be eective. Energy Financial

Management or Microsot Dynamics AX is designed to remain fexible or the unique requirements or

preerences o oil and gas and mining enterprises.


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Figure 2: Energy Financial Management or Microsot Dynamics AX provides a level o customization andfexibility unavailable in traditional accounting and ERP systems.

Scalable

With mergers and acquisitions the norm in the energy industry, new companies are commonly ormed by

combining two or more organizations together, requiring the new companies to manage growth as well

as to blend multiple systems and processes. Solutions or dynamic energy industry companies must be

scalable to accommodate these requent corporate changes. Because the Energy Financial Management

solution comes predesigned and integrated with Microsot Dynamics AX, it delivers superior perormanceand unctionality out o the box and also has the capability to expand and extend as business grows or

changes. Designed to scale rom a single client desktop to a multiuser, multiserver environment, Energy

Financial Management or Microsot Dynamics AX adapts to the demands o changing inrastructure in oil

and gas and mining companies.

International

Most energy companies will operate internationally at some time, so having a solution that includes

multilocation, multicurrency, and multilanguage support oers signicant advantages. Users o the

system can work in screens displaying labels in their language o preerence while still updating a single,

centralized database. Because it is built on Microsot Dynamics AX, the Energy Financial Management

solution includes international support and enables compliance with local accounting and reportingstandards o the international market while at the same time helping companies meet home-country

nancial reporting requirements.


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Features and Functionality

Energy Financial Management or Microsot Dynamics AX goes beyond simply providing customization

or companies in the oil and gas and mining industries; it delivers eatures and unctionality that help

companies build competitive advantage with a strong oundation or all their nancial management needs.

Energy Financial Management or Microsot Dynamics AX helps companies:

Manage cost centers and properties eectively.

Control authorization or expenditures smoothly and track costs with precision.

Streamline division o interest processes or eective operations.

Manage joint-venture partner billing and control costs within a single system.

Figure 3 maps the solution overall. At the base, the Microsot Dynamics AX oundation provides a robust

platorm that eatures core unctionality such as nancial management and business analytics, and

comprehensive business management solution unctionality such as human resources management, supply

chain and materials management, and customer relationship management.

In the next layer, Authorization or Expenditure (AFE), Division o Interest (DOI), and Joint-Venture Billing(JVB) unctionality streamlines specic business processes and helps companies manage costs and improve

operations. Creating and enorcing rules based on the companys unique policies happens in this layer.

Cost Center management spans all o the other areas o the process, whether budgeting or costs on AFEs,

managing the percentage splits on DOIs, or billing partners through JVBs.

Figure 3: Map o the Energy Financial Management or Microsot Dynamics AX solution.


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Cost Center Controls

Whether your cost center is a well, battery, or other type o project or acility, understanding and tracking

costs at all levels is necessary or business success. Energy Financial Management or Microsot Dynamics

AX simplies managing cost centers and properties at all stagesrom exploration through production

by assigning activities and costs to reporting hierarchies. The automatic calculation o overhead chargesto cost centers based on xed or variable rules enables you to accurately calculate costs that are billable to

your joint-venture partners.

Authorization or Expenditure (AFE)

In addition to tracking and understanding costs, sound nancial management requires the ability to control

capital expenditures and to measure actual against budgeted costs on both a gross and a net basis. Built-in

reports and alerting tools will help you gather approvals on an AFE both internally and rom your partners.

By automating updates and threshold warnings, Energy Financial Management or Microsot Dynamics

AX gives you a high level o control over and condence in the accuracy o the data. E-mail alerts can be

created in the system to inorm management o the need to control costs closely or create a supplement

to an existing AFE. Cash call unctionality at the AFE level enables you to quickly create cash call invoices toyour partners to request advance payments on large capital projects.

Figure 4 shows how the intuitive user interace provides details that help managers make condent

decisions about expenditures.

Figure 4: The Authorization or Expenditure screen gives details that help managers make condent decisions

about expenditures.


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Division o Interest (DOI)

Energy Financial Management or Microsot Dynamics AX also provides the ability to create all DOI rules

as established in your joint interest agreements with partners. Setting fexible date-eective division o

interest and account-based exceptions is easily done rom a single screen, as shown in Figure . A wizard

is also available to create a new division o interest or a revision to an existing division o interest. When aDOI revision needs to be terminated because it was set up incorrectly, or i the agreement has changed,

users can run a Reverse/Rebook unction to correct any costs that had been previously posted. The correct

DOI will then be created, and a ull audit trail will be maintained when the rebooked costs are split.

Figure 5: Manage division o interest and account-based exceptions rom one screen.

Joint-Venture Billing (JVB)

In an industry that commonly engages in joint ventures, having a fexible and robust JVB system isessential. Automating distribution and billing processes or joint ventures supports creating and enorcing

billing rules established by the companys unique billing policies, making it possible to control cost

processes within the same system and increase eciency and accuracy overall. Any outstanding cash calls

rom a partner will be automatically deducted rom a billing with a ull audit trail o how these costs have

been spent, providing the partners with details on all expenditures. Energy Financial Management or

Microsot Dynamics AX does not restrict the billing process to only occur at the end o the month. The

system will enable billings to occur when required, which can help alleviate cash fow challenges and may

support specic contractual agreements with partners.


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Technical Overview

Energy Financial Management or Microsot Dynamics AX takes advantage o the modular and scalable

three-tier, object-oriented architecture o Microsot Dynamics AX and is developed using the Microsot

Dynamics AX Integrated Development Environment (IDE).

The three-tier architecture with Application Object Server (AOS) technology o the Microsot Dynamics

AX platorm enables remote users to access nancial data while it helps keep the data secure. Because the

object server is placed between users and the database, users can get accurate, up-to-date inormation

when they need it without directly accessing the database. AOS technology uses a range o security

measures to help keep the nancial system secure, and when it is congured in conjunction with the

standard security system, you can congure the system to support a role-based environment. The role-

based environment enables your nancial users to view and control the nancial inputs and outputs

applicable to their departments while the operational team, including engineers and project managers, can

view operational inormation and make inormed decisions about uture projects.

Companies benet because development or Microsot Dynamics AX is streamlined, additional

customization is easier, and the overall cost o adapting and tailoring changes to meet customer-specic

requirements is reduced. Application layers enable you to store customer-specic adjustments in anisolated layer so the changes are easily identiable rom a development perspective and much easier to

upgrade to uture versions.

Flexibility, scalability, and integration are built into the solution, and multiple integration methods are

available to meet diering customer needs.


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Conclusion

Powered by the robust Microsot Dynamics AX platorm, the Energy Financial Management solution

provides a world-class accounting system, a strong oundation or a stable, reliable, comprehensive

business management system, and an integration platorm that streamlines nancial management or oil

and gas and mining companies.

Energy Financial Management or Microsot Dynamics AX provides a single, accurate view o all nancial

inormation and delivers built-in controls that make it easy to monitor expenditures, enorce billing rules,

and satisy corporate governance and other reporting requirements with increased accuracy and control.

Powerul, fexible, integrated, scalable. Energy Financial Management or Microsot Dynamics AX delivers

exceptional, world-class integrated nancial management to oil and gas and mining companies.

About.Microsoft.Dynamics

Microsot Dynamics is a line o nancial, customer relationship, and supply chain management solutions that helpbusinesses work eectively. Delivered through a network o channel partners that provide specialized services, theseintegrated, adaptable business management solutions work like and with amiliar Microsot sotware to streamlineprocesses across an entire business.

For.more.information

U.S. and Canada Toll Free 1--477-799

Worldwide +1-701-21-600

www.microsot.com/dynamics

The inormation contained in this document represents the current view o Microsot Corporation on the issues discussed as o the date o publication.Because Microsot must respond to changing market conditions, this document should not be interpreted to be a commitment on the part o Microsot,and Microsot cannot guarantee the accuracy o any inormation presented ater the date o publication.

This White Paper is or inormational purposes only. MICROSOFT MAKES NO WARRANTIES, EXPRESS, IMPLIED, OR STATUTORY, AS TO THEINFORMATION IN THIS DOCUMENT.

Complying with all applicable copyright laws is the responsibility o the user. Without limiting the rights under copyright, no part o this documentmay be reproduced, stored in or introduced into a retrieval system, or transmitted in any orm or by any means (electronic, mechanical, photocopying,recording, or otherwise), or or any purpose, without the express written permission o Microsot Corporation.

Microsot may have patents, patent applications, trademarks, copyrights, or other intellectual property rights covering subject matter in this document.Except as expressly provided in any written license agreement rom Microsot, the urnishing o this document does not give you any license to thesepatents, trademarks, copyrights, or other intellectual property.

ax energy fin mg twp april 07

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